BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Adam B. Schiff, Chairman
1999-2000 Regular Session
SB 587 S
Senator Burton B
As amended April 5
Hearing Date: April 6, 1999 5
Business and Professions Code 8
GWW:cjt 7
SUBJECT
Forum Selection Clauses: Beer Distribution Contracts
DESCRIPTION
This bill would make void and unenforceable a forum
selection clause in a contract between a beer manufacturer
and a beer wholesaler for the sale and distribution of beer
in this state, which restricts venue to a forum outside
this state, with respect to any claim arising under or
relating to the agreement.
BACKGROUND
Forum selection clauses are contractual provisions which
seek to designate the forum or court in which any dispute
arising under the contract shall be resolved. Thus, for
example, a forum selection clause in a contract between a
California beer distributor and a Milwaukee brewery may
require any dispute arising under the contract to be
brought and litigated in a designated Milwaukee court.
Forum selection clauses which have been "freely negotiated"
and are not "unreasonable and unjust" have been generally
enforceable. (Valentino & Smith Inc. v. Sup. Ct.(Life
Assur. Co. o Penn.) (1976) 17 Cal.4th 491.)
Generally, the proper venue for an action is where the
cause of action arose. In contract claims against a
corporation, the action may be brought in the county where
the contract is made, where the contract is to be
performed, or where the breach occurs. (Code of Civil
(more)
SB 587 (Burton)
Page 2
Procedure section 395.5.)
As to contract disputes arising in California, "[A]
provision in a contract purporting to fix the venue of a
future action on the contract in a particular county is
illegal and void." 3 Witkin, California Procedure, Actions
sec. 708 (4th Ed. 1996). (Citing, General Acceptance
Corp. v. Robinson (1929) 207 Cal. 285. Emphasis in
original.)
CHANGES TO EXISTING LAW
Existing law, the Alcoholic Beverage Control Act, licenses
and regulates
beer manufacturers and wholesalers.
Existing law, Business and Professions Code section 20040.5
of the California Franchise Relations Act, makes void and
unenforceable a provision in a franchise agreement which
restricts venue to a forum outside this state with respect
to any claim arising under or relating to a franchise
agreement involving a franchise business operating within
this state.
This bill would amend the Alcoholic Beverage Control Act to
provide that a provision in an agreement between a beer
manufacturer and a beer wholesaler for the sale and
distribution of beer in this state, which restricts venue
to a forum outside this state is void with respect to any
claim arising under or relating to the agreement involving
a beer wholesaler operating within this state. The bill
would apply to any transaction or conduct pursuant to the
agreement on or after the effective date of the measure.
COMMENT
1. Stated need for legislation
According to the sponsor, the California Beer and
Beverage Distributors, their members are being forced to
accept, by one out-of-state brewery, forum selection
clauses in their beer distribution contracts which
require any dispute to be brought and resolved in the
home state of the out-of-state brewery. This choice
between either subjecting themselves to an out-of-state
SB 587 (Burton)
Page 3
forum or losing their distribution rights is really no
choice at all.
This measure, they argue, is needed to level the playing
field and ensure that California beer distributors are
not unfairly forced to litigate claims arising out of
their distribution agreement in an out-of-state court at
considerable expense, inconvenience, and possible
prejudice to the California business.
Few business owners, proponents contend, can afford to
defend or prosecute their actions in another state. The
author of SB 587 contends that these forum selection
clauses put the California business owner at a tremendous
disadvantage in pursuing meritorious actions or
defending against frivolous claims. He also points out
that, at least in the case of the one brewery, the forum
selection clause is inserted into a standard contract
which the distributor is offered on a "take-it or
leave-it" basis. In the absence of arms-
length negotiations and equal bargaining position, such
terms are usually unconscionable. The author asserts
that it is in the state's interest and powers to void as
a matter of law such contractual terms to protect its
businesses.
2. Measure would not, in turn, force California
jurisdiction: inconvenient forum law still applicable
While SB 587 would permit an action to be filed in
California instead of the forum designated by the forum
selection clause, the bill would not make the doctrine of
forum non convenien inapplicable and preclude the
California court from transferring the action to a more
convenient forum. That doctrine states that a court may
decline jurisdiction over a case and transfer it in
situations where the cause of action would be more
conveniently and fairly tried in another state. Factors
affecting the court's decision are set forth in case law.
This bill would add to those considerations of factors
the State's public policy interest in protecting a
California businesses' ability to litigate and defend
claims in a convenient forum.
3. Policy consistent with other existing statutes
SB 587 (Burton)
Page 4
Business and Professions Code section 20040.5 makes void
and unenforceable a provision in a franchise agreement
which restricts venue to a forum outside this state with
respect to any claim arising under or relating to a
franchise agreement involving a franchise business
operating within this state. This provision was enacted
by AB 1920 (Peace) in 1994 to protect California
franchisees from unfair forum selection clauses in
franchise agreements.
Similarly, Code of Civil Procedure section 410.42
prohibits out-of-state forum selection clauses to resolve
disputes in a contract between a contractor and a
subcontractor with principal offices in California, for
any construction work in California.
4. Applicable to any transaction or conduct on or after the
effective date
The bill would specify that its provisions would apply to
any transaction or conduct pursuant to a beer
distribution agreement on or after the effective date of
the bill. Proponents content that the bill would not
impair existing contracts as the bill would apply
prospectively to conduct which occurred after the
effective date of the bill. Further, the change is a
procedural one which does not affect substantive rights.
Support: None Known
Opposition: None Known
HISTORY
Source: California Beer and Beverage Distributors
Related Pending Legislation: None Known
Prior Legislation: None Known
SB 587 (Burton)
Page 5
**************